Direction still unclear

F&O OUTLOOK

The markets opened weak this week. The indices could not sustain the high levels on account of profit booking by the foreign financial institutions (FIIs). The spot Nifty closed at 5766.50, losing 281.20 points (4.65 per cent) from the previous week's close. The Nifty December futures closed at 5781.35, down 293.65 points.

The Nifty futures open interest increased by 11.21 per cent or 3.72 million shares due to a build-up of fresh short positions. The FIIs remained net sellers in Nifty futures, adding 1.15 lakh contracts.

Moreover, they were net sellers in stock futures to the tune of 45928 contracts and have added 28930 contracts. But they bought index options worth 38973 contracts and the open interest increased by 48849 contracts.

The cost of carry for the Nifty January futures was marginally negative against a positive 14.10 per cent in case of the December contracts last week. The Nifty implied volatility remained at 28-29 per cent. The cost of carry for a majority of the stocks turned negative.

The Nifty PCR declined from 1.24 to 1.08, indicating an increase in Call options (up 24.16 per cent) compared with Put options OI (up 8.90 per cent). The decline in PCR indicates an oversold situation.

According to a derivatives analyst at Emkay Shares, the Nifty has an immediate resistance at 5900 and thereafter at 6200. There is a strong support at 5700 and a breach of this level could see a further slide.

The Nifty has been consolidating in the past few sessions, indicating an uncertainty in market direction. A breakout from the trading band of 5,695 - 5,790 on either side would add momentum to the markets. The support level of 5,740 would be crucial to stem any downtrend.